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Historical Perspective On Monthly Job Growth

Apr. 9, 2012 3:23 AM ETby: The Federal Reserve Bank of Atlanta

By Julie Hotchkiss

On Friday, the Bureau of Labor Statistics reported that, according to its Payroll Survey, 120,000 nonfarm jobs were added to the U.S. economy in March. There are a number of ways we can assess this number. First, and immediately, is the question of whether that number of additional jobs was enough to absorb the number of people who wanted jobs. Since the unemployment rate decreased slightly in March, the answer to that question is yes.

We can take another look at the jobs number, this one with a historical perspective. The chart plots the monthly change in payroll employment from January 1980 through March 2012, along with the average monthly payroll employment change that occurred during each expansionary period since 1980 (the dashed line). Abstracting from 1981, which some may not consider to be an expansionary period, the average monthly change in payroll employment has declined over successive expansionary periods, from roughly 228,000 jobs per month between December 1982 and July 1990 to 97,000 per month between December 2001 and December 2007. The current period, July 2009 through March 2012, has seen an average increase of about 71,000 jobs per month.

While the current period's average monthly employment growth is approaching the average of the 2001–07 expansionary period, the apparent longer-term erosion of monthly job growth during expansionary periods might be of some concern. Of course, that concern is tempered by expectations about the growth in the labor force. As many have noted, the United States is facing a declining population growth rate and is on a long-term downward trajectory in labor force participation (see projections from the Congressional Budget Office and the Bureau of Labor Statistics). The implication is that the economy now needs to create fewer jobs each month on average to absorb the labor force than it did 30 years ago.

Because of the usefulness of this historical perspective in assessing current jobs numbers, we've enhanced the Atlanta Fed's Jobs Calculator to provide the user this same perspective. As the user adjusts the desired unemployment rate and other assumptions, the resulting number of jobs needed to achieve that unemployment rate is now not only reported numerically but also illustrated graphically to give the user a perspective on where that number of jobs fits into a historical context (see the screenshot). We've made some other small changes that we believe improve the user's experience, so check it out again.

The Jobs Calculator is designed to answer the very simple question: "How many jobs need to be created to achieve a specific unemployment rate in a specific amount of time?" Of course, there are some assumptions the user can change, but that is the basic question.

Last month, in this macroblog post, I described how the Jobs Calculator can address a related, but different, question: "What would the unemployment rate have been if the labor force participation rate had not changed from the previous month?" Yet another question came up a few days ago that the Jobs Calculator, although not specifically designed to do so, can answer: "How many months will it take to reach an unemployment rate of, say, 8 percent?" Of course, to answer this question, we need to make an assumption regarding a reasonable monthly job growth number. This is where a historical perspective comes in handy.

Let's assume that a reasonable average monthly job growth number is 150,000, which is roughly the number of jobs added per month on average during the previous two periods of expansion. Also, let's leave all the other assumptions (the labor force participation rate and monthly population growth rate) at their default values for March.

Now, enter 8 percent in the target unemployment rate box and 1 for the number of months. Now hit the Enter key. (Yes, you can now use the Enter key to calculate!) Based on these assumptions, this calculation returns 437,854 jobs. Now, for number of months, enter 2, then 3, and so on (hitting Enter each time) until the number of CES jobs needed reaches about 150,000. I got there with six months (with the number of additional CES jobs needed at 153,539).

At 150,000 jobs per month (roughly) and March default assumptions for labor force participation and population growth, we get this:

A 7 percent unemployment rate will take about three years.

A 6 percent unemployment rate will take about five years.

We hope you like the enhancements to the Jobs Calculator, especially the historical perspective it now provides. Try it out again and let us know what other questions you have found it useful to answer.

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